N-CSR 1 a2117999zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-03159 811-03162 811-06530 811-03165 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald E. Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: June 30, 2003 Date of reporting period: June 30, 2003 Item 1 - Report to Shareholders WELCOME, SHAREHOLDER: THIS ANNUAL REPORT INCLUDES EACH FUND'S FINANCIAL STATEMENTS AND A LIST OF FUND INVESTMENTS, AS WELL AS OTHER INFORMATION. AN INVESTMENT IN A MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH MONEY MARKET FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THESE FUNDS. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUNDS BEING OFFERED. THERE IS NO ASSURANCE THAT THE FUNDS WILL ACHIEVE THEIR INVESTMENT OBJECTIVES. THE FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUNDS WILL DECLINE AND, THEREFORE, THE VALUE OF THE FUND SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THESE FUNDS. Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust ANNUAL HOUSEHOLDING NOTICE To reduce printing and mailing costs, the Funds attempt to eliminate duplicate mailings to the same address. The Funds deliver a single copy of certain shareholder documents including shareholder reports, prospectuses and proxy materials, to investors with the same last name and who reside at the same address. Your participation in this program will continue for an unlimited period of time, unless you instruct us otherwise. You can request multiple copies of these documents by calling (800) 350-6414, 8:00 am to 8:00 pm, ET. Once our Customer Service Center has received your instructions, we will begin sending individual copies for each account within 30 days. 2 Active Assets Money Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS DESCRIPTION AND MATURITY DATES PURCHASE VALUE ------------------------------------------------------------------------------- U.S. Government & Agency Obligations (49.2%) $2,499,300 Federal Home Loan Banks 07/07/03 - 09/03/03............... 0.89 - 1.24% $ 2,497,829,412 4,714,775 Federal National Mortgage Assoc. 07/07/03 - 04/30/04............... 0.91 - 1.24 4,703,517,316 1,355,600 Freddie Mac 07/30/03 - 12/31/03............... 1.14 - 1.24 1,351,904,043 2,900,000 U.S. Treasury Bills 09/11/03 - 12/26/03............... 0.79 - 1.17 2,891,563,972 --------------- Total U.S. Government & Agency Obligations (COST $11,444,814,743)........................... 11,444,814,743 --------------- Commercial Paper (37.6%) BANKING (2.1%) 500,000 Citicorp 07/02/03 - 08/18/03............... 1.02 - 1.20 499,646,333 --------------- FINANCE - CONSUMER (7.6%) 72,650 American Express Credit Corp. 07/08/03.......................... 0.95 72,636,580 220,000 DaimlerChrysler Revolving Auto Conduit 07/18/03 - 07/25/03............... 0.99 - 1.18 219,867,133 495,300 FCAR Owner Trust 07/08/03 - 07/22/03............... 0.97 - 1.24 495,068,964 980,000 New Center Asset Trust 07/14/03 - 07/29/03............... 0.95 - 1.24 979,435,856 --------------- 1,767,008,533 --------------- FINANCE - CORPORATE (0.2%) 51,650 CIESCO, LLC 07/09/03.......................... 1.23 51,635,882 --------------- FINANCIAL CONGLOMERATES (7.8%) 1,092,800 General Electric Capital Corp. 07/16/03 - 08/29/03............... 1.18 - 1.26 1,091,391,978 735,000 Mortgage Interest Networking Trust 07/18/03 - 08/13/03............... 0.95 - 1.24 734,377,939 --------------- 1,825,769,917 --------------- INTERNATIONAL BANKS (18.5%) 50,000 ANZ (DE) Inc. 07/23/03.......................... 0.96 49,970,667
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 3 Active Assets Money Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS DESCRIPTION AND MATURITY DATES PURCHASE VALUE ------------------------------------------------------------------------------- $ 383,600 Abbey National North America LLC 07/07/03 - 07/08/03............... 1.05 % $ 383,524,120 500,000 Barclays U.S. Funding Corp. 08/21/03 - 08/29/03............... 1.18 - 1.21 499,066,014 57,935 CBA (Delaware) Finance Inc. 07/31/03.......................... 1.03 57,885,272 240,000 Canadian Imperial Holdings Inc. 07/08/03 - 07/14/03............... 1.23 - 1.24 239,913,394 181,400 ING (US) Funding LLC 08/14/03 - 08/19/03............... 1.19 - 1.20 181,115,072 228,200 National Australia Funding (DE) Inc. 07/02/03 - 07/03/03............... 0.96 - 1.09 228,189,363 1,000,000 Royal Bank of Scotland PLC 07/03/03 - 07/15/03............... 1.21 - 1.24 999,648,431 808,900 Societe Generale N.A. Inc. 07/07/03 - 10/03/03............... 0.98 - 1.24 807,670,114 850,000 UBS Finance (Delaware) LLC 07/01/03 - 07/03/03............... 0.94 - 1.24 849,959,389 --------------- 4,296,941,836 --------------- INVESTMENT BANKS/BROKERS (1.4%) 322,000 Goldman Sachs Group, Inc. (The) 07/17/03 - 07/21/03............... 1.00 - 1.23 321,822,889 --------------- Total Commercial Paper (COST $8,762,825,390)............................ 8,762,825,390 --------------- Certificates of Deposit (10.6%) 1,075,000 Bank of America, N.A. 07/16/03 - 08/20/03............... 1.00 - 1.24 1,075,000,000 400,000 Branch Banking & Trust Co., N.C. 07/01/03.......................... 1.01 400,000,000 750,000 State Street Bank & Trust Co. 07/16/03 - 07/18/03............... 1.03 - 1.18 750,000,000 250,000 Wells Fargo Bank, N.A. 07/23/03 - 08/27/03............... 1.03 - 1.23 250,000,000 --------------- Total Certificates of Deposit (COST $2,475,000,000)............................ 2,475,000,000 ---------------
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 4 Active Assets Money Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS DESCRIPTION AND MATURITY DATES PURCHASE VALUE ------------------------------------------------------------------------------- Short-Term Bank Notes (2.6%) $ 600,000 Standard Federal Bank, N.A. 07/24/03 - 08/01/03 (COST $600,000,000)............... 1.04 - 1.23% $ 600,000,000 ---------------
Total Investments (COST $23,282,640,133) (a)........ 100.0% 23,282,640,133 Liabilities in Excess of Other Assets............................ (0.0) (4,980,368) ----- --------------- Net Assets......................... 100.0% $23,277,659,765 ===== ===============
--------------------- (A) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 5 Active Assets Money Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities JUNE 30, 2003 Assets: Investments in securities, at value (cost $23,282,640,133)................................. $23,282,640,133 Cash.............................................. 15,326 Interest receivable............................... 2,413,521 Prepaid expenses and other assets................. 320,243 --------------- Total Assets.................................. 23,285,389,223 --------------- Liabilities: Payable for: Investment management fee....................... 5,193,835 Distribution fee................................ 1,971,857 Shares of beneficial interest redeemed.......... 2,006 Accrued expenses and other payables............... 561,760 --------------- Total Liabilities............................. 7,729,458 --------------- Net Assets.................................... $23,277,659,765 =============== Composition of Net Assets: Paid-in-capital................................... $23,277,594,670 Accumulated undistributed net investment income... 65,095 --------------- Net Assets.................................... $23,277,659,765 =============== Net Asset Value Per Share, 23,277,636,469 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........... $ 1.00 ===============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 6 Active Assets Money Trust FINANCIAL STATEMENTS CONTINUED Statement of Operations FOR THE YEAR ENDED JUNE 30, 2003 Net Investment Income: Interest Income................................... $374,034,919 ------------ Expenses Investment management fee......................... 64,385,989 Distribution fee.................................. 24,205,951 Transfer agent fees and expenses.................. 9,434,779 Custodian fees.................................... 994,374 Shareholder reports and notices................... 521,277 Registration fees................................. 196,324 Professional fees................................. 52,801 Trustees' fees and expenses....................... 20,889 Other............................................. 411,604 ------------ Total Expenses................................ 100,223,988 ------------ Net Investment Income......................... 273,810,931 Net Realized Gain............................. 1,905 ------------ Net Increase...................................... $273,812,836 ============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 7 Active Assets Money Trust FINANCIAL STATEMENTS CONTINUED Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 --------------- --------------- Increase (Decrease) in Net Assets: Operations: Net investment income................... $ 273,810,931 $ 621,446,735 Net realized gain....................... 1,905 84,074 --------------- --------------- Net Increase........................ 273,812,836 621,530,809 --------------- --------------- Dividends and Distributions to Shareholders from: Net investment income................... (273,802,951) (621,446,027) Net realized gain....................... (1,905) (84,074) --------------- --------------- Total Dividends and Distributions... (273,804,856) (621,530,101) --------------- --------------- Net decrease from transactions in shares of beneficial interest................. (1,760,025,590) (1,174,174,409) --------------- --------------- Net Decrease........................ (1,760,017,610) (1,174,173,701) Net Assets: Beginning of period..................... 25,037,677,375 26,211,851,076 --------------- --------------- End of Period (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $65,095 AND $15,316, RESPECTIVELY)................. $23,277,659,765 $25,037,677,375 =============== ===============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 8 Active Assets Money Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 1. Organization and Accounting Policies Active Assets Money Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is high current income, preservation of capital and liquidity. The Fund was organized as a Massachusetts business trust on March 30, 1981 and commenced operations on July 7, 1981. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued at amortized cost, which approximates market value. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Repurchase Agreements -- The Fund may invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. E. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. F. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to ACTIVE ASSETS MONEY TRUST 9 Active Assets Money Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3 billion; 0.25% to the portion of daily net assets exceeding $3 billion but not exceeding $15 billion; 0.249% to the portion of daily net assets exceeding $15 billion but not exceeding $17.5 billion; 0.248% to the portion of daily net assets exceeding $17.5 billion but not exceeding $25 billion; 0.247% to the portion of daily net assets exceeding $25 billion but not exceeding $30 billion; and 0.246% to the portion of daily net assets exceeding $30 billion. 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the year ended June 30, 2003, the distribution fee was accrued at the annual rate of 0.10%. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities for the year ended June 30, 2003 aggregated $125,309,994,181 and $127,407,917,039, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At June 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $136,500. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended June 30, 2003 included in Trustees' fees and ACTIVE ASSETS MONEY TRUST 10 Active Assets Money Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED expenses in the Statement of Operations amounted to $7,265. At June 30, 2003, the Fund had an accrued pension liability of $58,087 which is included in accrued expenses in the Statement of Assets and Liabilities. 5. Shares of Beneficial Interest Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 --------------- --------------- Shares sold............................. 70,079,943,853 77,921,269,151 Shares issued in reinvestment of dividends and distributions............ 273,033,113 620,058,475 --------------- --------------- 70,352,976,966 78,541,327,626 Shares redeemed......................... (72,113,002,556) (79,715,502,035) --------------- --------------- Net decrease in shares outstanding...... (1,760,025,590) (1,174,174,409) =============== ===============
ACTIVE ASSETS MONEY TRUST 11 Active Assets Money Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED JUNE 30, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- Selected Per Share Data: Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net income from investment operations... 0.011 0.023 0.056 0.054 0.048 Less dividends from net investment income....... (0.011)+ (0.023)+ (0.056)+ (0.054) (0.048) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return............. 1.13% 2.33% 5.76% 5.50% 4.92% Ratios to Average Net Assets: Expenses................. 0.41% 0.40% 0.41% 0.42% 0.43% Net investment income.... 1.12% 2.32% 5.58% 5.38% 4.78% Supplemental Data: Net assets, end of period, in millions..... $23,278 $25,038 $26,212 $20,972 $15,989
--------------------- + INCLUDES CAPITAL GAIN DISTRIBUTION OF LESS THAN $0.001. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS MONEY TRUST 12 Active Assets Money Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Active Assets Money Trust: We have audited the accompanying statement of assets and liabilities of Active Assets Money Trust (the "Fund"), including the portfolio of investments, as of June 30, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Active Assets Money Trust as of June 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK AUGUST 7, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) Of the Fund's ordinary income dividends paid during the fiscal year ended June 30, 2003, 13.40% was attributable to qualifying Federal obligations. Please consult your tax advisor to determine if any portion of the dividends you received is exempt from state income tax. ACTIVE ASSETS MONEY TRUST 13 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- Short-Term Variable Rate Municipal Obligations (76.3%) ALABAMA $21,160 University of Alabama, Hospital Ser 2000............ 0.97% 07/08/03 $ 21,160,000 ARIZONA 2,400 Pinal County Industrial Development Authority, Newmont Mining Co Ser 1984... 0.95 07/01/03 2,400,000 CALIFORNIA 10,020 California Housing Finance Agency, Home Mortgage 2001 Ser U (MBIA) (AMT)........... 0.95 07/01/03 10,020,000 4,300 Golden Empire Schools Financing Authority, Kern High School District Ser 2001..................... 1.00 07/08/03 4,300,000 1,500 Orange County Sanitation District, Ser 2000 A COPs.... 0.85 07/01/03 1,500,000 COLORADO 15,000 Colorado Student Obligation Bond Authority, Ser 1989A (Ambac) (AMT)................ 1.00 07/08/03 15,000,000 DELAWARE 14,000 Delaware Economic Development Authority, Delaware Clean Power Ser 1997 C (AMT)....... 1.16 07/08/03 14,000,000 DISTRICT OF COLUMBIA 16,000 District of Columbia, George Washington University Ser 1999 C (MBIA)............ 1.05 07/08/03 16,000,000 FLORIDA 22,250 Dade County Industrial Development Authority, Dolphins Stadium Ser 1985 B & C............... 1.00 07/08/03 22,250,000 Orlando-Orange County Expressway Authority, 25,000 Ser 2003 C3 (FSA)............ 0.90 07/08/03 25,000,000 19,150 Ser 2003 C4 (FSA)............ 0.90 07/08/03 19,150,000 23,100 Pasco County School Board, Ser 1996 COPs (Ambac)........ 1.00 07/08/03 23,100,000 18,600 Tampa Bay Water, Utility System Ser 2002 (AMT)........ 1.05 07/08/03 18,600,000 16,840 Volusia County Health Facilities Authority, Pooled Hospital Loan (FGIC)......... 1.03 07/08/03 16,840,000 GEORGIA 21,000 Albany-Dougherty County Hospital Authority, Phoebe-Putney Memorial Hospital Ser 1991 (Ambac).... 1.00 07/08/03 21,000,000 50,000 Atlanta, Water & Wastewater Ser 2001 B (FSA)............. 0.90 07/08/03 50,000,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 14 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- $26,285 Burke County Development Authority, Oglethorpe Power Co Ser 1994 A (FGIC)......... 0.95% 07/08/03 $ 26,285,000 13,700 Clayton County Hospital Authority, Southern Regional Medical Center Ser 1998B..... 1.00 07/08/03 13,700,000 9,900 Georgia Municipal Electric Authority, Subser 2000 D..... 0.85 07/08/03 9,900,000 20,000 Metropolitan Atlanta Rapid Transit Authority, Ser 2000 A................... 1.05 07/08/03 20,000,000 15,250 Private Colleges & Universities Authority, Emory University 2001 Ser B........ 0.90 07/08/03 15,250,000 ILLINOIS 15,000 Chicago, Ser 2002 B (FGIC).... 0.95 07/08/03 15,000,000 75,000 Chicago Metropolitan Water Reclamation District, 2002 Ser A & E............... 0.90 07/08/03 75,000,000 30,500 Cook County, Ser 2002 B....... 1.09 07/08/03 30,500,000 8,000 Illinois Development Finance Authority, Palos Community Hospital Ser 1998............ 1.00 07/08/03 8,000,000 9,400 Illinois Health Facilities Authority, Northwestern Memorial Hospital Ser 1995 & Ser 2002 B........ 1.00 07/01/03 9,400,000 19,900 Illinois Toll Highway Authority, Refg 1993 Ser B (MBIA)....................... 0.90 07/08/03 19,900,000 KENTUCKY 19,375 Breckinridge County, Association of Counties Leasing Trust 2002 Ser A..... 1.00 07/01/03 19,375,000 22,500 Kenton County Airport Board, Flight Safety International Inc Ser 2001 A (AMT)......... 1.08 07/08/03 22,500,000 36,780 Louisville & Jefferson County Regional Airport Authority, United Parcel Service of America Ser 1999 A (AMT)..... 0.95 07/01/03 36,780,000 LOUISIANA 13,000 New Orleans Aviation Board, Ser 1993 B (MBIA)............ 1.05 07/08/03 13,000,000 MASSACHUSETTS 50,280 Massachusetts, Refg 1998 Ser B............................ 0.90 07/08/03 50,280,000 37,000 Massachusetts Bay Transportation Authority, Ser 2000..................... 0.95 07/08/03 37,000,000 Massachusetts Health & Educational Facilities Authority, 20,000 Amherst College 2003 Ser H... 0.88 06/09/04 20,000,000 20,000 Bentley College Ser K........ 1.00 07/08/03 20,000,000 Massachusetts Water Resources Authority, 11,100 Multi-Modal Sub 1999 Ser B... 0.90 07/08/03 11,100,000 22,500 Multi-Modal Sub 2001 Ser A (FGIC)....................... 0.90 07/08/03 22,500,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 15 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- MICHIGAN Detroit, $20,000 Sewage Disposal System Second Lien Ser 2000 E (FGIC)....... 1.50% 10/02/03 $ 20,000,000 50,000 Sewage Disposal System Senior Lien Ser 2001 C-1 (FSA)...... 0.90 07/08/03 50,000,000 25,000 Detroit, Water Supply System Refg Second Lien Ser 2001-C (FGIC)....................... 0.95 07/08/03 25,000,000 25,710 Holt Public Schools, Ser 2002......................... 0.90 07/08/03 25,710,000 43,750 Michigan Building Authority, 2002 Multi-Modal Ser II...... 0.90 07/08/03 43,750,000 22,325 Michigan Housing Development Authority, Rental Housing 2002 Ser B (MBIA)............ 0.90 07/08/03 22,325,000 11,000 Oakland University, Ser 2001 (FGIC)....................... 1.05 07/08/03 11,000,000 MINNESOTA 7,465 University of Minnesota Regents, Ser 1999A & 2001A................ 1.10 07/08/03 7,465,000 MISSISSIPPI 12,900 Perry County, Leaf River Forest Products Inc Ser 2002......................... 0.90 07/08/03 12,900,000 MISSOURI 25,000 Lee's Summit, Multifamily Housing Ser 2001 A........... 1.54 07/08/03 25,000,000 Missouri Health & Educational Facilities Authority, 180 Cox Health System Ser 2002... 1.10 07/01/03 180,000 38,600 Stowers Institute Ser 2002... 0.95 07/08/03 38,600,000 38,855 University of Missouri, Ser 2000 B................... 0.98 07/01/03 38,855,000 NEVADA Clark County, 9,000 Airport Sub Lien Ser 1999B-1 (AMT)........................ 0.98 07/08/03 9,000,000 16,370 Airport Sub Lien Ser 2001A (FGIC) (AMT)................. 1.06 07/01/03 16,370,000 47,000 Airport Sub Lien Ser 2001C (FGIC)....................... 0.90 07/08/03 47,000,000 NEW HAMPSHIRE 16,000 New Hampshire Higher Educational & Health Facilities Authority, Dartmouth College Ser 2002..................... 1.00 07/08/03 16,000,000 NEW JERSEY 34,800 New Jersey Turnpike Authority, Ser 1991 D (FGIC)............ 0.90 07/08/03 34,800,000 NEW MEXICO 19,900 Farmington, Arizona Public Service Co 1994 Ser C (AMT)........................ 0.90 07/01/03 19,900,000 NEW YORK 10,000 Long Island Power Authority, Electric Ser 2 Subser 2A..... 0.95 07/08/03 10,000,000 6,000 New York City, 1992 Ser D (FGIC)....................... 0.95 07/08/03 6,000,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 16 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- $ 500 New York State Energy Research & Development Authority, New York State Electric & Gas Corp Ser 1994 C................... 0.95% 07/01/03 $ 500,000 45,200 Triborough Bridge & Tunnel Authority, Ser 2002 F........ 1.00 07/08/03 45,200,000 NORTH CAROLINA 10,800 Charlotte, Fiscal 2002 Ser C............................ 1.00 07/08/03 10,800,000 50,100 Charlotte-Mecklenburg Hospital Authority, Health Care System Ser C & D.................... 0.90 07/08/03 50,100,000 3,500 Durham, Ser 1993A COPs........ 1.10 07/08/03 3,500,000 13,355 Mecklenburg County, Ser 2001 COPs......................... 1.00 07/08/03 13,355,000 North Carolina, 25,700 Ser 2002 C................... 0.90 07/08/03 25,700,000 15,000 Ser 2002 F................... 0.92 07/08/03 15,000,000 North Carolina Medical Care Commission, 25,000 Firsthealth of the Carolinas Ser 2002..................... 0.95 07/08/03 25,000,000 43,100 North Carolina Baptist Hospitals Ser 2000........... 0.97 07/08/03 43,100,000 27,825 University of North Carolina at Chapel Hill, Ser 2001 C................... 0.90 07/08/03 27,825,000 OHIO 9,200 Columbus, Unlimited Tax Ser 1995-1....................... 0.90 07/08/03 9,200,000 OKLAHOMA Oklahoma Water Resources Board, State Loan Program 44,165 Ser 1994A & 1999............. 1.10 09/02/03 44,165,000 16,905 Ser 2001..................... 1.10 10/01/03 16,905,000 5,000 Tulsa County Industrial Authority, Montereau in Warren Woods Ser 2002 A...... 0.95 07/01/03 5,000,000 OREGON 29,000 Oregon, Veterans Ser 73 G..... 1.00 07/08/03 29,000,000 PENNSYLVANIA Pennsylvania Higher Education Assistance Agency, 25,000 Student Loan 1988 Ser B (Ambac) (AMT)................ 1.00 07/08/03 25,000,000 40,000 Student Loan 1997 Ser A & 2001 Ser A (Ambac) (AMT)..... 1.05 07/08/03 40,000,000 25,000 Pennsylvania Turnpike Commission, 2002 Ser A-2..... 0.95 07/08/03 25,000,000 14,800 Philadelphia, Water & Wastewater Ser 2003.......... 0.90 07/08/03 14,800,000 23,700 York General Authority, Harrisburg School District Subser 1996 B (Ambac)........ 1.00 07/08/03 23,700,000 RHODE ISLAND 22,000 Rhode Island Convention Center, Ser 2001............. 0.90 07/08/03 22,000,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 17 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- SOUTH CAROLINA $24,000 Greenwood County, Fuji Photo Film Inc Ser 2001............ 1.10% 07/08/03 $ 24,000,000 Piedmont Municipal Power Agency, 21,000 Electric Refg Ser 1997 A (MBIA)....................... 0.95 07/08/03 21,000,000 15,900 Electric Refg Ser 2002 B (FGIC)....................... 0.85 07/08/03 15,900,000 TENNESSEE Clarksville Public Building Authority, 26,925 Pooled Financing Ser 1995.... 1.00 07/08/03 26,925,000 10,765 Pooled Financing Ser 2001.... 1.00 07/01/03 10,765,000 7,900 Memphis, GO Airport Refg Ser 1995 B (AMT)................. 1.05 07/08/03 7,900,000 Metropolitan Nashville & Davidson County Health & Educational Facilities Board, 10,000 Ensworth School Ser 2002..... 1.00 07/08/03 10,000,000 7,400 Vanderbilt University 2002 Ser B........................ 0.93 07/01/03 7,400,000 Montgomery County Public Building Authority, 53,370 Pool Financing Ser 1997 & 1999......................... 1.00 07/08/03 53,370,000 1,890 Pool Financing Ser 2002...... 1.00 07/01/03 1,890,000 TEXAS 23,000 Brownsville, Utilities System Sub Lien Ser 2001B (MBIA).... 0.95 07/08/03 23,000,000 2,800 Gulf Coast Waste Disposal Authority, Exxon Corp Ser 1995..................... 0.90 07/01/03 2,800,000 Harris County, 15,000 Toll Road Unlimited Tax Sub Lien Ser 1994 B.............. 1.00 07/08/03 15,000,000 17,735 Toll Road Unlimited Tax Sub Lien Ser 1994 D.............. 1.10 07/08/03 17,735,000 42,700 Harris County Health Facilities Development Corporation, Methodist Hospital Ser 2002............ 0.95 07/01/03 42,700,000 19,000 Harris County Industrial Development Corporation, Baytank Inc Ser 1998......... 0.95 07/08/03 19,000,000 7,100 Lower Neches Valley Authority, Exxon Oil Refining Ser 1999 (AMT)........................ 0.95 07/01/03 7,100,000 San Antonio, Water System 7,000 Ser 2003 A (MBIA)............ 0.90 07/08/03 7,000,000 16,500 Ser 2003 B (MBIA)............ 1.00 07/08/03 16,500,000 9,300 Texas, Veterans' Housing Assistance Fund II Ser 2003 A (AMT)............. 0.98 07/08/03 9,300,000 62,520 Texas Municipal Gas Corporation, Senior Lien Ser 1998..................... 1.00 07/08/03 62,520,000 UTAH 18,600 Eagle Mountain, Gas & Electric Ser 2001..................... 1.00 07/08/03 18,600,000 Intermountain Power Agency, 30,000 1985 Ser E (Ambac)........... 0.97 12/01/03 30,000,000 35,900 1985 Ser F (Ambac)........... 1.00 09/15/03 35,900,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 18 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE ----------------------------------------------------------------------------- $34,575 Salt Lake County, Service Station Holdings British Petroleum Ser 1994B.......... 0.98% 07/01/03 $ 34,575,000 VIRGINIA 15,000 Chesapeake Hospital Authority, Chesapeake General Hospital Ser 2001 A................... 1.00 07/08/03 15,000,000 29,000 Loudoun County Industrial Development Authority, Howard Hughes Medical Institute Ser 2003 B & F............... 0.90 07/08/03 29,000,000 WASHINGTON 15,000 Port of Seattle, 1997 Ser A (AMT)...................... 1.15 07/08/03 15,000,000 18,800 Washington, Ser VR - 96 A..... 0.93 07/08/03 18,800,000 WISCONSIN 9,500 Brokaw, Wausau Paper Mills Co Ser 1995 (AMT)............... 1.35 07/08/03 9,500,000 -------------- Total Short-Term Variable Rate Municipal Obligations (COST $2,378,675,000)............................ 2,378,675,000 --------------
YIELD TO MATURITY COUPON MATURITY ON DATE OF RATE DATE PURCHASE ------ -------- ---------- Tax-Exempt Commercial Paper (18.5%) ALABAMA Montgomery County Industrial Development Board, 7,000 General Electric Co Ser 1990.................... 1.00% 08/11/03 1.00% 7,000,000 20,000 General Electric Co Ser 1990.................... 0.95 08/12/03 0.95 20,000,000 COLORADO 7,500 Regional Transportation District, Sub Lien Sales Tax Ser 2001 A.......... 1.00 08/11/03 1.00 7,500,000 DISTRICT OF COLUMBIA 20,000 District of Columbia, The American National Red Cross Ser 2000.......... 0.90 09/09/03 0.90 20,000,000 FLORIDA 15,000 Hillsborough County, Ser 2002 A.................. 0.95 08/26/03 0.95 15,000,000 HAWAII 6,500 Honolulu City & County, Ser 2001 Notes.......... 1.05 08/06/03 1.05 6,500,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 19 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE ---------------------------------------------------------------------------------- INDIANA $25,160 Indiana State Office Building Commission, Hoosier Notes Ser A..... 0.95% 09/10/03 0.95% $ 25,160,000 MARYLAND Maryland Health & Higher Educational Facilities Authority, 19,000 The Johns Hopkins Hospital Ser C.......... 1.05 07/10/03 1.05 19,000,000 15,000 The Johns Hopkins Hospital Ser C.......... 1.00 08/11/03 1.00 15,000,000 MASSACHUSETTS Massachusetts, 20,000 Ser E................... 0.85 07/24/03 0.85 20,000,000 20,000 Ser E................... 0.85 07/28/03 0.85 20,000,000 19,000 Massachusetts Port Authority, Ser 2003 A.............. 0.95 07/21/03 0.95 19,000,000 Massachusetts Water Resources Authority, 11,000 Ser 1999................ 1.05 07/22/03 1.05 11,000,000 8,500 Ser 1999................ 1.05 08/13/03 1.05 8,500,000 MICHIGAN 12,530 Michigan, Multi-Modal School Loan Ser 2003 A.............. 1.06 10/06/03 1.06 12,530,000 MINNESOTA Rochester, Mayo Foundation/Mayo Medical Center 15,000 Ser 1992 C.............. 1.05 08/20/03 1.05 15,000,000 13,100 Ser 2000 C.............. 1.03 07/22/03 1.03 13,100,000 17,250 Ser 2000 C.............. 1.05 08/13/03 1.05 17,250,000 10,000 Ser 2001 D.............. 1.00 07/29/03 1.00 10,000,000 NEBRASKA 10,000 Omaha Public Power District, Ser A......... 1.05 07/07/03 1.05 10,000,000 NEVADA 12,000 Clark County, Motor Vehicle Fuel Tax Ser A................... 1.05 07/14/03 1.05 12,000,000 PENNSYLVANIA Montgomery County Industrial Development Authority, 12,000 Exelon Generation Co Ser 2001 B.............. 1.00 08/14/03 1.00 12,000,000 16,400 PECO Energy 1994 Ser A................... 1.05 07/15/03 1.05 16,400,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 20 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE ---------------------------------------------------------------------------------- SOUTH CAROLINA South Carolina Public Service Authority, $12,000 Santee Cooper Ser 1998.................... 1.05% 07/14/03 1.05% $ 12,000,000 12,972 Santee Cooper Ser 1998.................... 0.95 07/29/03 0.95 12,972,000 TEXAS 15,000 Dallas Area Rapid Transit, Ser 2001....... 0.95 08/14/03 0.95 15,000,000 15,000 Harris County, Notes Ser D................... 1.05 07/11/03 1.05 15,000,000 Houston, 10,000 Water & Sewer Ser 1994 A.............. 1.10 07/08/03 1.10 10,000,000 25,000 Water & Sewer Ser 1994 A.............. 1.15 07/08/03 1.15 25,000,000 15,000 Water & Sewer Ser 1994 A.............. 1.10 07/09/03 1.10 15,000,000 12,600 Irving, Water and Sewer Ser A................... 1.10 07/17/03 1.10 12,600,000 North Central Texas Health Facilities Development Corporation, 20,000 Methodist Hospitals of Dallas Ser 1998 (Ambac)................. 1.05 07/09/03 1.05 20,000,000 11,000 Methodist Hospitals of Dallas Ser 1998 (Ambac)................. 0.95 08/13/03 0.95 11,000,000 9,000 Methodist Hospitals of Dallas Ser 1998 (Ambac)................. 1.05 08/14/03 1.05 9,000,000 24,300 San Antonio, Electric & Gas Ser 1995 A.......... 1.05 07/23/03 1.05 24,300,000 19,000 Texas Municipal Power Agency, Ser 1991........ 1.05 08/07/03 1.05 19,000,000 10,000 Texas Public Finance Authority, Ser 2003..... 1.03 07/18/03 1.03 10,000,000 10,000 University of Texas System Board of Regents, Permanent University Fund Ser A.............. 0.93 11/07/03 0.93 10,000,000 WASHINGTON 23,600 King County, Sewer Ser A....................... 1.00 08/06/03 1.00 23,600,000 -------------- Total Tax-Exempt Commercial Paper (COST $576,412,000)................................... 576,412,000 -------------- Short-Term Municipal Notes & Bonds (8.3%) CALIFORNIA California School Cash Reserve Program Authority, 28,000 2002 Pool Ser A (Ambac), dtd 07/03/02............ 3.00 07/03/03 1.67 28,002,007 22,500 2003 Pool Ser A (Ambac), dtd 07/03/03 (WI)....... 2.00 07/06/04 0.90 22,747,725 ILLINOIS 25,000 Illinois, Revenue Anticipation Certificates Ser 2002, dtd 05/22/03............ 2.00 04/15/04 0.96 25,203,134
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 21 Active Assets Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE ---------------------------------------------------------------------------------- INDIANA $40,000 Indiana Bond Bank, Advance Funding Ser 2003 A, dtd 06/12/03............ 1.25% 04/15/04 0.93% $ 40,100,212 Indianapolis Local Public Improvement Bond Bank, 10,000 Ser 2003 B, dtd 01/14/03................ 2.00 07/08/03 1.13 10,001,656 15,000 Ser 2003 F, dtd 06/26/03................ 1.25 01/08/04 0.88 15,028,796 KENTUCKY 50,000 Kentucky Association of Counties Advance Revenue Program, Ser 2003 A COPs, dtd 07/01/03 (WI)....... 2.00 06/30/04 0.90 50,543,500 NEW YORK 17,500 Erie County, Ser 2003 A RANs, dtd 06/24/03............ 1.50 06/23/04 0.90 17,601,785 TEXAS 30,000 Texas, Ser 2002 TRANs, dtd 08/29/02............ 2.75 08/29/03 1.39 30,065,029 WISCONSIN 19,000 Milwaukee, Ser 2002 B RANs, dtd 09/04/02...... 2.75 08/28/03 1.43 19,039,401 -------------- Total Short-Term Municipal Notes & Bonds (COST $258,333,245)................................... 258,333,245 --------------
Total Investments (COST $3,213,420,245) (A) (B).................... 103.1% 3,213,420,245 Liabilities in Excess of Other Assets............. (3.1) (97,761,382) ------ -------------- Net Assets........................................ 100.0% $3,115,658,863 ====== ==============
--------------------- AMT ALTERNATIVE MINIMUM TAX. COPS CERTIFICATES OF PARTICIPATION. RANS REVENUE ANTICIPATION NOTES. TRANS TAX AND REVENUE ANTICIPATION NOTES. WI SECURITY PURCHASED ON A WHEN-ISSUED BASIS. + RATE SHOWN IS THE RATE IN EFFECT AT JUNE 30, 2003. * DATE ON WHICH THE PRINCIPAL AMOUNT CAN BE RECOVERED THROUGH DEMAND. (a) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $109,391,499 IN CONNECTION WITH THE PURCHASE OF WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. (b) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. BOND INSURANCE: AMBAC AMBAC ASSURANCE CORPORATION. FGIC FINANCIAL GUARANTY INSURANCE COMPANY. FSA FINANCIAL SECURITY ASSURANCE INC. MBIA MBIA INSURANCE CORPORATION. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 22 Active Assets Tax-Free Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities JUNE 30, 2003 Assets: Investments in securities, at value (cost $3,213,420,245).................................. $3,213,420,245 Cash.............................................. 6,931,369 Interest receivable............................... 5,940,373 Prepaid expenses and other assets................. 75,663 -------------- Total Assets.................................. 3,226,367,650 -------------- Liabilities: Payable for: Investments purchased........................... 109,391,499 Investment management fee....................... 946,690 Distribution fee................................ 268,265 Accrued expenses and other payables............... 102,333 -------------- Total Liabilities............................. 110,708,787 -------------- Net Assets.................................... $3,115,658,863 ============== Composition of Net Assets: Paid-in-capital................................... $3,115,627,425 Accumulated undistributed net investment income... 41,528 Accumulated net realized loss..................... (10,090) -------------- Net Assets.................................... $3,115,658,863 ============== Net Asset Value Per Share, 3,115,668,159 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........... $ 1.00 ==============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 23 Active Assets Tax-Free Trust FINANCIAL STATEMENTS CONTINUED Statement of Operations FOR THE YEAR ENDED JUNE 30, 2003 Net Investment Income: Interest Income................................... $39,570,026 ---------- Expenses Investment management fee......................... 11,034,476 Distribution fee.................................. 3,059,388 Transfer agent fees and expenses.................. 378,724 Custodian fees.................................... 128,560 Registration fees................................. 94,710 Shareholder reports and notices................... 65,648 Professional fees................................. 47,215 Trustees' fees and expenses....................... 20,805 Other............................................. 59,020 ---------- Total Expenses................................ 14,888,546 Less: expense offset.............................. (128,147) ---------- Net Expenses.................................. 14,760,399 ---------- Net Investment Income............................. $24,809,627 ==========
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 24 Active Assets Tax-Free Trust FINANCIAL STATEMENTS CONTINUED Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Increase (Decrease) in Net Assets: Operations: Net investment income................... $ 24,809,627 $ 43,103,831 Dividends to shareholders from net investment income...................... (24,808,438) (43,102,764) Net increase (decrease) from transactions in shares of beneficial interest............................... 169,007,069 (128,761,190) -------------- -------------- Net Increase (Decrease)............. 169,008,258 (128,760,123) Net Assets: Beginning of period..................... 2,946,650,605 3,075,410,728 -------------- -------------- End of Period (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $41,528 AND $40,054, RESPECTIVELY)................. $3,115,658,863 $2,946,650,605 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 25 Active Assets Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 1. Organization and Accounting Policies Active Assets Tax-Free Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to provide a high level of daily income which is exempt from federal income tax consistent with stability of principal and liquidity. The Fund was organized as a Massachusetts business trust on March 30, 1981 and commenced operations on July 7, 1981. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued at amortized cost, which approximates market value. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. E. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the portion of daily net ACTIVE ASSETS TAX-FREE TRUST 26 Active Assets Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3 billion; 0.25% to the portion of daily net assets exceeding $3 billion but not exceeding $15 billion; and 0.249% to the portion of daily net assets exceeding $15 billion. 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the year ended June 30, 2003, the distribution fee was accrued at the annual rate of 0.10%. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities for the year ended June 30, 2003 aggregated $7,572,343,020 and $7,451,902,000, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At June 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $1,200. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended June 30, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,265. At June 30, 2003, the Fund had an accrued pension liability of $58,087 which is included in accrued expenses in the Statement of Assets and Liabilities. ACTIVE ASSETS TAX-FREE TRUST 27 Active Assets Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED 5. Shares of Beneficial Interest Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Shares sold............................. 9,532,821,650 9,459,188,018 Shares issued in reinvestment of dividends.............................. 24,808,438 43,102,764 -------------- -------------- 9,557,630,088 9,502,290,782 Shares redeemed......................... (9,388,623,019) (9,631,051,972) -------------- -------------- Net increase (decrease) in shares outstanding............................ 169,007,069 (128,761,190) ============== ==============
6. Federal Income Tax Status At June 30, 2003, the Fund had a net capital loss carryover of approximately $10,000 which will be available through June 30, 2009 to offset future capital gains to the extent provided by regulations. 7. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. ACTIVE ASSETS TAX-FREE TRUST 28 Active Assets Tax-Free Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED JUNE 30, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- Selected Per Share Data: Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net income from investment operations... 0.008 0.014 0.033 0.031 0.027 Less dividends from net investment income....... (0.008) (0.014) (0.033) (0.031) (0.027) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return............. 0.81% 1.38% 3.34% 3.15% 2.73% Ratios to Average Net Assets: Expenses (before expense offset)................. 0.48% 0.48%(1) 0.48% 0.50% 0.52% Net investment income.... 0.80% 1.38% 3.28% 3.11% 2.68% Supplemental Data: Net assets, end of period, in millions..... $3,116 $2,947 $3,075 $2,660 $2,290
--------------------- (1) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS TAX-FREE TRUST 29 Active Assets Tax-Free Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Active Assets Tax-Free Trust: We have audited the accompanying statement of assets and liabilities of Active Assets Tax-Free Trust (the "Fund"), including the portfolio of investments, as of June 30, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Active Assets Tax-Free Trust as of June 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK AUGUST 7, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) For the year ended June 30, 2003, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. ACTIVE ASSETS TAX-FREE TRUST 30 Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE --------------------------------------------------------------------------- California Tax-Exempt Short-Term Variable Rate Municipal Obligations (81.0%) ABAG Finance Authority for Nonprofit Corporations, $ 4,000 Computer History Museum Ser 2002......................... 0.90% 07/08/03 $ 4,000,000 8,400 Episcopal Homes Foundation Ser 2000 COPs................ 1.05 07/08/03 8,400,000 7,000 Lease Purchase 2003 Ser A.... 1.05 07/08/03 7,000,000 12,800 Antelope Valley Union High School District, School Facility Bridge Funding 2002 Ser C (FSA).................. 0.85 07/08/03 12,800,000 17,800 Bay Area Toll Authority, San Francisco Bay Area Toll Bridge Ser B (Ambac)......... 0.85 07/08/03 17,800,000 20,000 Big Bear Lake, Southwest Gas Corp 1993 Ser A (AMT)........ 0.95 07/08/03 20,000,000 11,970 California Alternative Energy Source Finance Authority, General Electric Capital Corp-Arroyo Energy 1993 Ser B (AMT)........................ 1.00 07/08/03 11,970,000 California Educational Facilities Authority, 5,000 California Institute of Technology Ser 1994.......... 0.90 07/08/03 5,000,000 15,165 Stanford University Ser L-5.......................... 0.85 07/08/03 15,165,000 California Housing Finance Agency, 12,030 Home Mortgage 2001 Ser J (AMT) (FSA).................. 0.95 07/01/03 12,030,000 3,400 Home Mortgage 2001 Ser U (AMT) (MBIA)................. 0.95 07/01/03 3,400,000 8,300 Home Mortgage 2002 Ser J (AMT) (MBIA)................. 0.95 07/01/03 8,300,000 12,000 Home Mortgage 2002 Ser M (AMT)........................ 0.95 07/01/03 12,000,000 15,000 Home Mortgage 2003 Ser F (AMT) (FSA).................. 0.95 07/08/03 15,000,000 California Pollution Control Financing Authority, 10,485 Chevron USA Inc Ser 1984B.... 1.10 06/15/04 10,486,763 2,300 Shell Oil Co Ser 1991 A...... 0.85 07/01/03 2,300,000 5,000 Solid Waste Disposal Waste Management Inc Ser 2002 A (AMT)........................ 0.96 07/08/03 5,000,000 California Statewide Communities Development Authority, 1,515 Chevron USA Inc Ser 2002..... 0.92 07/01/03 1,515,000 10,000 Children's Hospital of Los Angeles Ser 2002 A (Ambac)... 0.85 07/08/03 10,000,000 32,570 California Transit Finance Authority, Ser 1997 (FSA).... 1.00 07/08/03 32,570,000 14,655 Chino Basin Financing Authority, Inland Empire Utilities Agency Ser 2002 A (Ambac)...................... 0.85 07/08/03 14,655,000 23,600 Contra Costa County, Multifamily The Park Regency Ser 1992 A (AMT)............. 0.97 07/08/03 23,600,000 6,900 Eastern Municipal Water District, Water & Sewer Ser 1993 B COPs (FGIC)........... 0.85 07/08/03 6,900,000 17,500 Elsinore Valley Municipal Water District, Ser 2000 A COPs (FGIC).................. 0.95 07/08/03 17,500,000 10,500 Fremont, Creekside Village Multifamily Ser 1985 D....... 0.85 07/08/03 10,500,000 14,600 Fresno, Sewer System Sub Lien Ser 2000 A (FGIC)............ 0.95 07/08/03 14,600,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 31 Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE --------------------------------------------------------------------------- $ 8,000 Golden Empire Schools Financing Authority, Kern High School District Ser 2001......................... 1.00% 07/08/03 $ 8,000,000 7,274 Irvine Assessment District, No 00-18, Improvement Bond Act 1915......................... 0.85 07/01/03 7,274,000 8,700 Lancaster, Antelope Pines Apartment Ser 2001 A......... 0.87 07/08/03 8,700,000 Los Angeles, Multifamily 30,000 1985 Ser K................... 0.88 07/08/03 30,000,000 3,150 1994 Ser A (AMT)............. 1.00 07/01/03 3,150,000 22,100 Los Angeles Community Redevelopment Agency, Grand Promenade Ser 2002........... 0.88 07/08/03 22,100,000 10,000 Los Angeles Convention and Exhibition Center Authority, Ser 2003 F (Ambac)........... 0.97 06/16/04 10,000,000 Los Angeles Department of Water & Power, 12,000 Power System 2001 Ser B Subser B-1................... 0.85 07/08/03 12,000,000 15,000 Water System 2001 Ser B Subser B-1................... 1.05 07/08/03 15,000,000 4,000 Water System 2001 Ser B Subser B-2................... 0.85 07/01/03 4,000,000 Metropolitan Water District of Southern California, 8,000 Water 1999 Ser C............. 0.90 07/08/03 8,000,000 10,000 Water 2000 Ser B-4........... 0.85 07/08/03 10,000,000 9,395 Waterworks 1996 Ser A (Ambac)...................... 0.80 07/08/03 9,395,000 16,100 Monterey Peninsula Water Management District, Wastewater Ser 1992 COPs..... 1.05 07/08/03 16,100,000 9,200 Newport Beach, Hoag Memorial Hospital Presbyterian Ser 1996 B & C............... 1.00 07/01/03 9,200,000 27,700 Oakland-Alameda County Coliseum Authority, Oakland Coliseum 2000 Refg Ser C-1... 1.00 07/08/03 27,700,000 3,000 Orange County Housing Authority, Oasis Martinique Refg 1998 Issue I............ 0.92 07/08/03 3,000,000 5,140 Orange County Sanitation District, Ser 2000 A & Ser 2000 B COPs.................. 0.85 07/01/03 5,140,000 5,000 Pasadena, City Hall & Park Improvement Ser 2003 COPs (Ambac)...................... 0.95 07/08/03 5,000,000 4,500 Pomona Redevelopment Agency, Park & Plaza Apartments Ser 1998 A................... 0.87 07/08/03 4,500,000 13,000 Rancho Mirage Joint Powers Financing Authority, Eisenhower Medical Center Ser 1997 B COPs (MBIA)........... 0.97 07/08/03 13,000,000 6,950 Redlands, Orange Village Apartments 1988 Ser A (AMT)........................ 1.05 07/08/03 6,950,000 6,940 Sacramento County, Administration Center & Courthouse Ser 1990 COPs..... 1.00 07/08/03 6,940,000 15,000 San Bernardino County, Medical Center Financing Ser 1998 COPs (MBIA).................. 1.05 07/08/03 15,000,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 32 Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
PRINCIPAL AMOUNT IN COUPON DEMAND THOUSANDS RATE+ DATE* VALUE --------------------------------------------------------------------------- $11,275 San Francisco City & County, Folsom-Dore Apartments Ser 2002 A (AMT)................. 1.10% 07/08/03 $ 11,275,000 7,500 San Francisco City & County Redevelopment Agency, Bayside Village Multifamily Ser 1985 A............................ 1.02 07/08/03 7,500,000 13,400 San Jose Redevelopment Agency, Merged Area 1996 Ser B....... 0.90 07/08/03 13,400,000 5,300 San Jose-Santa Clara Clean Water Financing Authority, Sewer Ser 1995 B (FGIC)...... 0.85 07/08/03 5,300,000 12,500 Southern California Public Power Authority, Transmission Refg Ser 2001 A (FSA)........ 0.95 07/08/03 12,500,000 5,120 Turlock Irrigation District, Ser 1988 A................... 1.00 07/08/03 5,120,000 ------------ Total California Tax-Exempt Short-Term Variable Rate Municipal Obligations (COST $617,735,763).............................. 617,735,763 ------------
YIELD TO MATURITY COUPON MATURITY ON DATE OF RATE DATE PURCHASE ------ -------- ---------- California Tax-Exempt Commercial Paper (15.8%) 10,000 California Infrastructure & Economic Development Bank, Salvation Army Western Territory Ser 2001.................... 1.08% 01/28/04 1.08% 10,000,000 East Bay Municipal Utility District, 11,000 Water System Ser 1997... 1.05 07/23/03 1.05 11,000,000 10,000 Water System Ser 1997... 1.00 08/13/03 1.00 10,000,000 10,000 Los Angeles County Metropolitan Transportation Authority, 2nd Sub Sales Tax Ser A............... 1.05 08/20/03 1.05 10,000,000 15,000 San Diego County Regional Transportation Commission, Sub Sales Tax Ser A............... 1.05 08/12/03 1.05 15,000,000 San Diego County Water Authority, 16,000 Ser 1................... 1.00 08/14/03 1.00 16,000,000 10,000 Ser 1................... 0.98 09/24/03 0.98 10,000,000 6,400 San Gabriel Valley Council of Governments, Alameda Corridor-East GANs.................... 0.95 08/13/03 0.95 6,400,000 University of California Regents, 11,700 Ser A................... 0.95 07/29/03 0.95 11,700,000 10,000 Ser A................... 0.95 08/07/03 0.95 10,000,000
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 33 Active Assets California Tax-Free Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003 CONTINUED
YIELD TO PRINCIPAL MATURITY AMOUNT IN COUPON MATURITY ON DATE OF THOUSANDS RATE DATE PURCHASE VALUE -- --------------------------------------------------------------------------------- Puerto Rico $ 9,923 Puerto Rico Government Development Bank, Ser 1986................ 1.00% 07/10/03 1.00% $ 9,923,000 ------------- Total California Tax-Exempt Commercial Paper (COST $120,023,000)................................... 120,023,000 ------------- California Tax-Exempt Short-Term Municipal Notes (15.6%) California School Cash Reserve Program Authority, 35,000 2002 Pool Ser A (Ambac), dtd 07/03/02............ 3.00 07/03/03 1.67 35,002,508 30,000 2003 Pool Set A (Ambac), dtd 07/03/03 (WI)....... 2.00 07/06/04 0.90 30,330,300 14,795 California Statewide Communities Development Authority, 2003 Ser A-1 TRANs (FSA), dtd 07/01/03 (WI)....... 2.00 06/30/04 0.88 14,958,781 8,540 Los Angeles County, 2003-2004 Ser A TRANs, dtd 07/01/03 (WI)....... 2.00 06/30/04 0.85 8,637,100 Santa Cruz, 15,000 2002-2003 TRANs, dtd 07/02/02................ 3.00 07/01/03 1.65 15,000,000 15,000 2003-2004 TRANs, dtd 07/02/03 (WI)........... 2.00 07/01/04 0.91 15,161,550 ------------- Total California Tax-Exempt Short-Term Municipal Notes (COST $119,090,239)................................... 119,090,239 -------------
Total Investments (COST $856,849,002) (A) (B)...................... 112.4% 856,849,002 Liabilities in Excess of Other Assets............. (12.4) (94,401,293) ------ ------------ Net Assets........................................ 100.0% $762,447,709 ====== ============
--------------------- AMT ALTERNATIVE MINIMUM TAX. COPS CERTIFICATES OF PARTICIPATION. GANS GRANT ANTICIPATION NOTES. TRANS TAX AND REVENUE ANTICIPATION NOTES. WI SECURITY PURCHASED ON A WHEN-ISSUED BASIS. + RATE SHOWN IS THE RATE IN EFFECT AT JUNE 30, 2003. * DATE ON WHICH THE PRINCIPAL AMOUNT CAN BE RECOVERED THROUGH DEMAND. (a) SECURITIES HAVE BEEN DESIGNATED AS COLLATERAL IN AN AMOUNT EQUAL TO $97,587,731 IN CONNECTION WITH THE PURCHASE OF WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. (b) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. BOND INSURANCE: AMBAC AMBAC ASSURANCE CORPORATION. FGIC FINANCIAL GUARANTY INSURANCE COMPANY. FSA FINANCIAL SECURITY ASSURANCE INC. MBIA MBIA INSURANCE CORPORATION. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 34 Active Assets California Tax-Free Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities JUNE 30, 2003 Assets: Investments in securities, at value (cost $856,849,002).................................... $856,849,002 Cash.............................................. 1,212,854 Interest receivable............................... 2,412,236 Prepaid expenses.................................. 22,354 ----------- Total Assets.................................. 860,496,446 ----------- Liabilities: Payable for: Investments purchased........................... 97,587,731 Investment management fee....................... 307,129 Distribution fee................................ 64,918 Accrued expenses and other payables............... 88,959 ----------- Total Liabilities............................. 98,048,737 ----------- Net Assets.................................... $762,447,709 =========== Composition of Net Assets: Paid-in-capital................................... $762,443,144 Accumulated undistributed net investment income... 4,565 ----------- Net Assets.................................... $762,447,709 =========== Net Asset Value Per Share, 762,423,818 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE).................. $ 1.00 ===========
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 35 Active Assets California Tax-Free Trust FINANCIAL STATEMENTS CONTINUED Statement of Operations FOR THE YEAR ENDED JUNE 30, 2003 Net Investment Income: Interest Income................................... $9,700,871 --------- Expenses Investment management fee......................... 3,723,198 Distribution fee.................................. 782,245 Transfer agent fees and expenses.................. 94,566 Professional fees................................. 47,660 Shareholder reports and notices................... 42,086 Custodian fees.................................... 36,079 Trustees' fees and expenses....................... 19,995 Registration fees................................. 12,645 Other............................................. 19,101 --------- Total Expenses................................ 4,777,575 Less: expense offset.............................. (35,922) --------- Net Expenses.................................. 4,741,653 --------- Net Investment Income............................. $4,959,218 =========
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 36 Active Assets California Tax-Free Trust FINANCIAL STATEMENTS CONTINUED Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- Increase (Decrease) in Net Assets: Operations: Net investment income................... $ 4,959,218 $ 9,180,749 Dividends to shareholders from net investment income...................... (4,959,654) (9,180,575) Net increase (decrease) from transactions in shares of beneficial interest............................... (207,445) 3,566,660 ------------ ------------ Net Increase (Decrease)............. (207,881) 3,566,834 Net Assets: Beginning of period..................... 762,655,590 759,088,756 ------------ ------------ End of Period (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $4,565 AND $603, RESPECTIVELY).................... $762,447,709 $762,655,590 ============ ============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 37 Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 1. Organization and Accounting Policies Active Assets California Tax-Free Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objective is to provide a high level of daily income which is exempt from federal and California income tax consistent with stability of principal and liquidity. The Fund was organized as a Massachusetts business trust on July 10, 1991 and commenced operations on November 12, 1991. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued at amortized cost, which approximates market value. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable and nontaxable income to its shareholders. Accordingly, no federal income tax provision is required. D. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. E. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the portion of daily net ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 38 Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the portion of daily net assets exceeding $3 billion. 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the year ended June 30, 2003, the distribution fee was accrued at the annual rate of 0.10%. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities for the year ended June 30, 2003 aggregated $1,971,004,731 and $1,950,530,000, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At June 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $1,800. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended June 30, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $6,486. At June 30, 2003, the Fund had an accrued pension liability of $51,102 which is included in accrued expenses in the Statement of Assets and Liabilities. ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 39 Active Assets California Tax-Free Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED 5. Shares of Beneficial Interest Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Shares sold............................. 2,216,990,398 2,296,072,907 Shares issued in reinvestment of dividends.............................. 4,959,654 9,180,575 -------------- -------------- 2,221,950,052 2,305,253,482 Shares redeemed......................... (2,222,157,497) (2,301,686,822) -------------- -------------- Net increase (decrease) in shares outstanding............................ (207,445) 3,566,660 ============== ==============
6. Expense Offset The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Fund. ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 40 Active Assets California Tax-Free Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED JUNE 30, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- Selected Per Share Data: Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net income from investment operations... 0.006 0.011 0.026 0.026 0.023 Less dividends from net investment income....... (0.006) (0.011) (0.026) (0.026) (0.023) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return............. 0.63% 1.15% 2.68% 2.60% 2.31% Ratios to Average Net Assets: Expenses (before expense offset)................. 0.60% 0.60% 0.59% 0.61% 0.63%(1) Net investment income.... 0.63% 1.14% 2.64% 2.55% 2.28% Supplemental Data: Net assets, end of period, in thousands.... $762,448 $762,656 $759,089 $697,703 $625,753
--------------------- (1) DOES NOT REFLECT THE EFFECT OF EXPENSE OFFSET OF 0.01%. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 41 Active Assets California Tax-Free Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Active Assets California Tax-Free Trust: We have audited the accompanying statement of assets and liabilities of Active Assets California Tax-Free Trust (the "Fund"), including the portfolio of investments, as of June 30, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Active Assets California Tax-Free Trust as of June 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK AUGUST 7, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) For the year ended June 30, 2003, all of the Fund's dividends from net investment income were exempt interest dividends, excludable from gross income for Federal income tax purposes. ACTIVE ASSETS CALIFORNIA TAX-FREE TRUST 42 Active Assets Government Securities Trust PORTFOLIO OF INVESTMENTS / / JUNE 30, 2003
ANNUALIZED PRINCIPAL YIELD AMOUNT IN ON DATE OF THOUSANDS DESCRIPTION AND MATURITY DATES PURCHASE VALUE ------------------------------------------------------------------------------ U.S. Government Agencies (92.7%) $680,000 Federal Home Loan Banks 07/02/03 - 09/03/03............... 0.91 - 1.18% $ 679,439,459 290,000 Federal National Mortgage Assoc. 07/09/03 - 08/27/03............... 0.96 - 1.20 289,700,044 120,000 Freddie Mac 07/17/03 - 08/07/03............... 1.14 - 1.21 119,904,150 50,000 Student Loan Marketing Assoc. 08/12/03.......................... 0.96 49,944,000 -------------- Total U.S. Government Agencies (COST $1,138,987,653)............................. 1,138,987,653 -------------- U.S. Government Obligation (0.8%) 10,000 U.S. Treasury Bill 07/03/03 (COST $9,999,467)................. 0.96 9,999,467 -------------- Repurchase Agreement (6.6%) 80,330 Goldman, Sachs & Co. due 07/01/03 (dated 06/30/03; proceeds $80,332,678) (a) (COST $80,330,000)................ 1.20 80,330,000 --------------
Total Investments (COST $1,229,317,120) (B)......... 100.1% 1,229,317,120 Liabilities in Excess of Other Assets............................ (0.1) (623,362) ----- -------------- Net Assets......................... 100.0% $1,228,693,758 ===== ==============
--------------------- (a) COLLATERALIZED BY FEDERAL NATIONAL MORTGAGE ASSOC. 6.00% - 6.63% DUE 08/01/09 - 03/01/33 VALUED AT $81,936,600. (b) COST IS THE SAME FOR FEDERAL INCOME TAX PURPOSES. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 43 Active Assets Government Securities Trust FINANCIAL STATEMENTS Statement of Assets and Liabilities JUNE 30, 2003 Assets: Investments in securities, at value (cost $1,229,317,120).................................. $1,229,317,120 Cash.............................................. 2,237 Interest receivable............................... 2,678 Prepaid expenses and other assets................. 46,503 ------------- Total Assets.................................. 1,229,368,538 ------------- Liabilities: Payable for: Investment management fee....................... 451,449 Distribution fee................................ 104,719 Accrued expenses and other payables............... 118,612 ------------- Total Liabilities............................. 674,780 ------------- Net Assets.................................... $1,228,693,758 ============= Composition of Net Assets: Paid-in-capital................................... $1,228,648,915 Accumulated undistributed net investment income... 44,843 ------------- Net Assets.................................... $1,228,693,758 ============= Net Asset Value Per Share, 1,228,693,220 shares outstanding (UNLIMITED SHARES AUTHORIZED OF $.01 PAR VALUE)........... $ 1.00 =============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 44 Active Assets Government Securities Trust FINANCIAL STATEMENTS CONTINUED Statement of Operations FOR THE YEAR ENDED JUNE 30, 2003 Net Investment Income: Interest Income................................... $21,644,780 ---------- Expenses Investment management fee......................... 6,025,221 Distribution fee.................................. 1,435,837 Transfer agent fees and expenses.................. 137,171 Registration fees................................. 78,942 Professional fees................................. 45,505 Custodian fees.................................... 38,848 Shareholder reports and notices................... 37,441 Trustees' fees and expenses....................... 20,762 Other............................................. 23,598 ---------- Total Expenses................................ 7,843,325 ---------- Net Investment Income......................... 13,801,455 Net Realized Gain............................. 1,458 ---------- Net Increase...................................... $13,802,913 ==========
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 45 Active Assets Government Securities Trust FINANCIAL STATEMENTS CONTINUED Statement of Changes in Net Assets
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Increase (Decrease) in Net Assets: Operations: Net investment income................... $ 13,801,455 $ 31,931,759 Net realized gain....................... 1,458 400,942 -------------- -------------- Net Increase........................ 13,802,913 32,332,701 -------------- -------------- Dividends and Distributions to Shareholders from: Net Investment income................... (13,801,110) (31,931,695) Net realized gain....................... (1,458) (400,942) -------------- -------------- Total Dividends and Distributions... (13,802,568) (32,332,637) -------------- -------------- Net decrease from transactions in shares of beneficial interest................. (198,302,159) (176,378,521) -------------- -------------- Net Decrease........................ (198,301,814) (176,378,457) Net Assets: Beginning of period..................... 1,426,995,572 1,603,374,029 -------------- -------------- End of Period (INCLUDING ACCUMULATED UNDISTRIBUTED NET INVESTMENT INCOME OF $44,843 AND $193, RESPECTIVELY).................... $1,228,693,758 $1,426,995,572 ============== ==============
SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 46 Active Assets Government Securities Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 1. Organization and Accounting Policies Active Assets Government Securities Trust (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Fund's investment objectives are high current income, preservation of capital and liquidity. The Fund was organized as a Massachusetts business trust on March 30, 1981 and commenced operations on July 7, 1981. The following is a summary of significant accounting policies: A. Valuation of Investments -- Portfolio securities are valued at amortized cost, which approximates market value. B. Accounting for Investments -- Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses on security transactions are determined by the identified cost method. Discounts are accreted and premiums are amortized over the life of the respective securities. Interest income is accrued daily. C. Repurchase Agreements -- The Fund may invest directly with institutions in repurchase agreements. The Fund's custodian receives the collateral, which is marked-to-market daily to determine that the value of the collateral does not decrease below the repurchase price plus accrued interest. D. Federal Income Tax Policy -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Accordingly, no federal income tax provision is required. E. Dividends and Distributions to Shareholders -- The Fund records dividends and distributions to shareholders as of the close of each business day. F. Use of Estimates -- The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. 2. Investment Management Agreement Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Fund pays the Investment Manager a management fee, accrued daily and payable monthly, by applying the following annual rates to the net assets of the Fund determined as of the ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 47 Active Assets Government Securities Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED close of each business day: 0.50% to the portion of daily net assets not exceeding $500 million; 0.425% to the portion of daily net assets exceeding $500 million but not exceeding $750 million; 0.375% to the portion of daily net assets exceeding $750 million but not exceeding $1 billion; 0.35% to the portion of daily net assets exceeding $1 billion but not exceeding $1.5 billion; 0.325% to the portion of daily net assets exceeding $1.5 billion but not exceeding $2 billion; 0.30% to the portion of daily net assets exceeding $2 billion but not exceeding $2.5 billion; 0.275% to the portion of daily net assets exceeding $2.5 billion but not exceeding $3 billion; and 0.25% to the portion of daily net assets exceeding $3 billion. 3. Plan of Distribution Morgan Stanley Distributors Inc. (the "Distributor"), an affiliate of the Investment Manager, is the distributor of the Fund's shares and in accordance with a Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act, finances certain expenses in connection with the promotion of sales of Fund shares. Reimbursements for these expenses are made in monthly payments by the Fund to the Distributor, which will in no event exceed an amount equal to a payment at the annual rate of 0.15% of the Fund's average daily net assets during the month. Expenses incurred by the Distributor pursuant to the Plan in any fiscal year will not be reimbursed by the Fund through payments accrued in any subsequent fiscal year. For the year ended June 30, 2003, the distribution fee was accrued at the annual rate of 0.10%. 4. Security Transactions and Transactions with Affiliates The cost of purchases and proceeds from sales/maturities of portfolio securities for the year ended June 30, 2003 aggregated $49,960,272,643 and $50,177,472,388, respectively. Morgan Stanley Trust, an affiliate of the Investment Manager and Distributor, is the Fund's transfer agent. At June 30, 2003, the Fund had transfer agent fees and expenses payable of approximately $2,300. The Fund has an unfunded noncontributory defined benefit pension plan covering all independent Trustees of the Fund who will have served as independent Trustees for at least five years at the time of retirement. Benefits under this plan are based on years of service and compensation during the last five years of service. Aggregate pension costs for the year ended June 30, 2003 included in Trustees' fees and expenses in the Statement of Operations amounted to $7,265. At June 30, 2003, the Fund had an accrued pension liability of $58,098 which is included in accrued expenses in the Statement of Assets and Liabilities. ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 48 Active Assets Government Securities Trust NOTES TO FINANCIAL STATEMENTS / / JUNE 30, 2003 CONTINUED 5. Shares of Beneficial Interest Transactions in shares of beneficial interest, at $1.00 per share, were as follows:
FOR THE YEAR FOR THE YEAR ENDED ENDED JUNE 30, 2003 JUNE 30, 2002 -------------- -------------- Shares sold............................. 6,396,600,275 5,669,833,665 Shares issued in reinvestment of dividends and distributions............ 13,784,355 32,300,420 -------------- -------------- 6,410,384,630 5,702,134,085 Shares redeemed......................... (6,608,686,789) (5,878,512,606) -------------- -------------- Net decrease in shares outstanding...... (198,302,159) (176,378,521) ============== ==============
ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 49 Active Assets Government Securities Trust FINANCIAL HIGHLIGHTS Selected ratios and per share data for a share of beneficial interest outstanding throughout each period:
FOR THE YEAR ENDED JUNE 30, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- Selected Per Share Data: Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- ------- ------- ------- ------- Net income from investment operations... 0.009 0.020 0.053 0.050 0.045 Less dividends from net investment income....... (0.009)+ (0.020)+ (0.053) (0.050) (0.045) ------- ------- ------- ------- ------- Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======= ======= ======= ======= Total Return............. 0.95% 2.01% 5.48% 5.17% 4.64% Ratios to Average Net Assets: Expenses................. 0.55% 0.53% 0.56% 0.59% 0.61% Net investment income.... 0.96% 1.96% 5.24% 5.03% 4.50% Supplemental Data: Net assets, end of period, in thousands.... $1,228,694 $1,426,996 $1,603,374 $932,466 $995,448
--------------------- + INCLUDES CAPITAL GAIN DISTRIBUTION OF LESS THAN $0.001. SEE NOTES TO FINANCIAL STATEMENTS ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 50 Active Assets Government Securities Trust INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees of Active Assets Government Securities Trust: We have audited the accompanying statement of assets and liabilities of Active Assets Government Securities Trust (the "Fund"), including the portfolio of investments, as of June 30, 2003, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2003, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Active Assets Government Securities Trust as of June 30, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP NEW YORK, NEW YORK AUGUST 7, 2003 2003 FEDERAL TAX NOTICE (UNAUDITED) Of the Fund's ordinary income dividends paid during the fiscal year ended June 30, 2003, 55.32% was attributable to qualifying Federal obligations. Please consult your tax advisor to determine if any portion of the dividends you received is exempt from state income tax. ACTIVE ASSETS GOVERNMENT SECURITIES TRUST 51 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust TRUSTEE AND OFFICER INFORMATION Independent Trustees:
Number of Portfolios Term of in Fund Position(s) Office and Complex Name, Age and Address of Held with Length of Overseen Independent Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years** by Trustee*** ------------------------- ----------- --------------- --------------------------------------------- ------------------------- Michael Bozic (62) Trustee Since April Retired; Director or Trustee of the Retail 216 c/o Mayer, Brown, Rowe & 1994 Funds and TCW/DW Term Trust 2003 (since April Maw LLP 1994) and the Institutional Funds (since July Counsel to the 2003); formerly Vice Chairman of Kmart Independent Directors Corporation (December 1998-October 2000), 1675 Broadway Chairman and Chief Executive Officer of New York, NY Levitz Furniture Corporation (November 1995-November 1998) and President and Chief Executive Officer of Hills Department Stores (May 1991-July 1995); formerly variously Chairman, Chief Executive Officer, President and Chief Operating Officer (1987-1991) of the Sears Merchandise Group of Sears, Roebuck & Co. Edwin J. Garn (70) Trustee Since January Director or Trustee of the Retail Funds and 216 c/o Summit Ventures LLC 1993 TCW/DW Term Trust 2003 (since January 1993) 1 Utah Center and the Institutional Funds (since July 201 S. Main Street 2003); member of the Utah Regional Advisory Salt Lake City, UT Board of Pacific Corp.; formerly United States Senator (R-Utah) (1974-1992) and Chairman, Senate Banking Committee (1980-1986), Mayor of Salt Lake City, Utah (1971-1974), Astronaut, Space Shuttle Discovery (April 12-19, 1985), and Vice Chairman, Huntsman Corporation (chemical company). Wayne E. Hedien (69) Trustee Since September Retired; Director or Trustee of the Retail 216 c/o Mayer, Brown, Rowe & 1997 Funds and TCW/DW Term Trust 2003; (Since Maw LLP September 1997) and the Institutional Funds Counsel to the (since July 2003); formerly associated with Independent Directors the Allstate Companies (1966-1994), most 1675 Broadway recently as Chairman of The Allstate New York, NY Corporation (March 1993-December 1994) and Chairman and Chief Executive Officer of its wholly-owned subsidiary, Allstate Insurance Company (July 1989-December 1994). Name, Age and Address of Independent Trustee Other Directorships Held by Trustee ------------------------- ----------------------------------- Michael Bozic (62) Director of Weirton Steel c/o Mayer, Brown, Rowe & Corporation. Maw LLP Counsel to the Independent Directors 1675 Broadway New York, NY Edwin J. Garn (70) Director of Franklin Covey (time c/o Summit Ventures LLC management systems), BMW Bank of 1 Utah Center North America, Inc. (industrial 201 S. Main Street loan corporation), United Space Salt Lake City, UT Alliance (joint venture between Lockheed Martin and the Boeing Company) and Nuskin Asia Pacific (multilevel marketing); member of the board of various civic and charitable organizations. Wayne E. Hedien (69) Director of The PMI Group Inc. c/o Mayer, Brown, Rowe & (private mortgage insurance); Maw LLP Trustee and Vice Chairman of The Counsel to the Field Museum of Natural History; Independent Directors director of various other business 1675 Broadway and charitable organizations. New York, NY
52 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust TRUSTEE AND OFFICER INFORMATION CONTINUED
Number of Portfolios Term of in Fund Position(s) Office and Complex Name, Age and Address of Held with Length of Overseen Independent Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years** by Trustee*** ------------------------- ----------- -------------- --------------------------------------------- ------------------------- Dr. Manuel H. Johnson Trustee Since July Chairman of the Audit Committee and Director 216 (54) 1991 or Trustee of the Retail Funds and TCW/DW c/o Johnson Smick Term Trust 2003 (since July 1991) and the International, Inc. Institutional Funds (since July 2003); Senior 2099 Pennsylvania Avenue, Partner, Johnson Smick International, Inc., a N.W. consulting firm; Co-Chairman and a founder of Suite 950 the Group of Seven Council (G7C), an Washington, D.C. international economic commission; formerly Vice Chairman of the Board of Governors of the Federal Reserve System and Assistant Secretary of the U.S. Treasury. Joseph J. Kearns (60) Trustee Since July Deputy Chairman of the Audit Committee and 217 PMB754 2003 Director or Trustee of the Retail Funds and 23852 Pacific TCW/DW Term Trust 2003 (since July 2003) and Coast Highway the Institutional Funds (since August 1994); Malibu, CA previously Chairman of the Audit Committee of the Institutional Funds (October 2001-July 2003); President, Kearns & Associates LLC (investment consulting); formerly CFO of the J. Paul Getty Trust. Michael E. Nugent (67) Trustee Since July Chairman of the Insurance Committee and 216 c/o Triumph Capital, L.P. 1991 Director or Trustee of the Retail Funds and 445 Park Avenue TCW/DW Term Trust 2003 (since July 1991) and New York, NY the Institutional Funds (since July 2001); General Partner of Triumph Capital, L.P., a private investment partnership; formerly Vice President, Bankers Trust Company and BT Capital Corporation (1984-1988). Fergus Reid (71) Trustee Since July Chairman of the Governance Committee and 217 85 Charles Colman Blvd. 2003 Director or Trustee of the Retail Funds and Pawling, NY TCW/DW Term Trust 2003 (since July 2003) and the Institutional Funds (since June 1992); Chairman of Lumelite Plastics Corporation. Name, Age and Address of Independent Trustee Other Directorships Held by Trustee ------------------------- ----------------------------------- Dr. Manuel H. Johnson Director of NVR, Inc. (home (54) construction); Chairman and Trustee c/o Johnson Smick of the Financial Accounting International, Inc. Foundation (oversight organization 2099 Pennsylvania Avenue, of the Financial Accounting N.W. Standards Board); Director of RBS Suite 950 Greenwich Capital Holdings Washington, D.C. (financial holding company). Joseph J. Kearns (60) Director of Electro Rent PMB754 Corporation (equipment leasing), 23852 Pacific The Ford Family Foundation, and the Coast Highway UCLA Foundation. Malibu, CA Michael E. Nugent (67) Director of various business c/o Triumph Capital, L.P. organizations. 445 Park Avenue New York, NY Fergus Reid (71) Trustee and Director of certain 85 Charles Colman Blvd. investment companies in the Pawling, NY JPMorgan Funds complex managed by JP Morgan Investment Management Inc.
53 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust TRUSTEE AND OFFICER INFORMATION CONTINUED Interested Trustees:
Term of Position(s) Office and Name, Age and Address of Held with Length of Interested Trustee Registrant Time Served* Principal Occupation(s) During Past 5 Years** ------------------------- ------------------- --------------- --------------------------------------------- Charles A. Fiumefreddo Chairman of the Since July 1991 Chairman and Director or Trustee of the (70) Board and Trustee Retail Funds and TCW/DW Term Trust 2003 c/o Morgan Stanley Trust (since July 1991) and the Institutional Funds Harborside Financial (since July 2003); formerly Chief Executive Center, Officer of the Retail Funds and the TCW/DW Plaza Two, Term Trust 2003 (until September 2002). Jersey City, NJ James F. Higgins (55) Trustee Since June 2000 Director or Trustee of the Retail Funds and c/o Morgan Stanley Trust TCW/DW Term Trust 2003 (since June 2000) and Harborside Financial the Institutional Funds (since July 2003); Center, Senior Advisor of Morgan Stanley (since Plaza Two, August 2000); Director of the Distributor and Jersey City, NJ Dean Witter Realty Inc.; previously President and Chief Operating Officer of the Private Client Group of Morgan Stanley (May 1999-August 2000), and President and Chief Operating Officer of Individual Securities of Morgan Stanley (February 1997-May 1999). Philip J. Purcell (59) Trustee Since April Director or Trustee of the Retail Funds and 1585 Broadway 1994 TCW/DW Term Trust 2003 (since April 1994) and New York, NY the Institutional Funds (since July 2003); Chairman of the Board of Directors and Chief Executive Officer of Morgan Stanley and Morgan Stanley DW Inc.; Director of the Distributor; Chairman of the Board of Directors and Chief Executive Officer of Novus Credit Services Inc.; Director and/or officer of various Morgan Stanley subsidiaries. Number of Portfolios in Fund Complex Name, Age and Address of Overseen Interested Trustee by Trustee*** Other Directorships Held by Trustee ------------------------- ------------------------- ----------------------------------- Charles A. Fiumefreddo 216 None (70) c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ James F. Higgins (55) 216 Director of AXA Financial, Inc. and c/o Morgan Stanley Trust The Equitable Life Assurance Harborside Financial Society of the United States Center, (financial services). Plaza Two, Jersey City, NJ Philip J. Purcell (59) 216 Director of American Airlines, Inc. 1585 Broadway and its parent company, AMR New York, NY Corporation.
---------------------------- * THIS IS THE EARLIEST DATE THE TRUSTEE BEGAN SERVING THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT ADVISORS INC. (THE "INVESTMENT MANAGER") (THE "RETAIL FUNDS"). ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICES AS DIRECTOR/TRUSTEE FOR THE RETAIL FUNDS AND THE FUNDS ADVISED BY MORGAN STANLEY INVESTMENT MANAGEMENT INC., MORGAN STANLEY INVESTMENTS LP AND MORGAN STANLEY AIP GP LP (THE "INSTITUTIONAL FUNDS") REFLECT THE EARLIEST DATE THE DIRECTOR/TRUSTEE BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. *** THE FUND COMPLEX INCLUDES ALL OPEN-END AND CLOSED-END FUNDS (INCLUDING ALL OF THEIR PORTFOLIOS) ADVISED BY THE INVESTMENT MANAGER AND ANY FUNDS THAT HAVE AN INVESTMENT ADVISOR THAT IS AN AFFILIATED PERSON OF THE INVESTMENT MANAGER (INCLUDING BUT NOT LIMITED TO MORGAN STANLEY INVESTMENT MANAGEMENT INC. AND MORGAN STANLEY INVESTMENTS LP). 54 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust TRUSTEE AND OFFICER INFORMATION CONTINUED Officers:
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* ----------------------------------- ----------------------------------- ----------------------------------- Mitchell M. Merin (49) President Since May 1999 1221 Avenue of the Americas New York, NY Barry Fink (48) Vice President and General Counsel Since February 1997 1221 Avenue of the Americas New York, NY Ronald E. Robison (64) Executive Vice President and Since April 2003 1221 Avenue of the Americas Principal Executive Officer New York, NY Joseph J. McAlinden (60) Vice President Since July 1995 1221 Avenue of the Americas New York, NY Stefanie V. Chang (36) Vice President Since July 2003 1221 Avenue of the Americas New York, NY Name, Age and Address of Executive Officer Principal Occupation(s) During Past 5 Years** ----------------------------------- --------------------------------------------- Mitchell M. Merin (49) President and Chief Operating Officer of 1221 Avenue of the Americas Morgan Stanley Investment Management Inc.; New York, NY President, Director and Chief Executive Officer of the Investment Manager and Morgan Stanley Services; Chairman, Chief Executive Officer and Director of the Distributor; Chairman and Director of the Transfer Agent; Director of various Morgan Stanley subsidiaries; President Morgan Stanley Investments LP (since February 2003); President of the Institutional Funds (since July 2003) and President of the Retail Funds and TCW/DW Term Trust 2003 (since May 1999); Trustee (since July 2003) and President (since December 2002) of the Van Kampen Closed-End Funds; Trustee (since May 1999) and President (since October 2002) of the Van Kampen Open-End Funds. Barry Fink (48) General Counsel (since May 2000) and Managing 1221 Avenue of the Americas Director (since December 2000) of Morgan New York, NY Stanley Investment Management; Managing Director (since December 2000), Secretary (since February 1997) and Director (since July 1998) of the Investment Manager and Morgan Stanley Services; Assistant Secretary of Morgan Stanley DW; Chief Legal Officer of Morgan Stanley Investments LP (since July 2002); Vice President of the Institutional Funds (since July 2003); Vice President and Secretary of the Distributor; previously Secretary of the Retail Funds (February 1997-July 2003); previously Vice President and Assistant General Counsel of the Investment Manager and Morgan Stanley Services (February 1997-December 2001). Ronald E. Robison (64) Chief Global Operations Officer and Managing 1221 Avenue of the Americas Director of Morgan Stanley Investment New York, NY Management Inc.; Managing DIrector of Morgan Stanley & Co. Incorporated; Managing DIrector of Morgan Stanley; Managing Director, Chief Administrative Officer and Director of the Investment Manager and Morgan Stanley Services; Chief Executive Officer and Director of the Transfer Agent; Executive Vice President and Principal Executive Officer of the Institutional Funds (since July 2003); and the TCW/DW Term Trust 2003 (since April 2003); previously President of the Institutional Funds (March 2001-July 2003) and Director of the Institutional Funds (March 2001-July 2003). Joseph J. McAlinden (60) Managing Director and Chief Investment 1221 Avenue of the Americas Officer of the Investment Manager, Morgan New York, NY Stanley Investment Management Inc. and Morgan Stanley Investments LP; Director of the Transfer Agent, Chief Investment Officer of the Van Kampen Funds; Vice President of the Institutional Funds (since July 2003) and the Retail Funds (since July 1995). Stefanie V. Chang (36) Executive Director of Morgan Stanley & Co. 1221 Avenue of the Americas and Morgan Stanley Investment Management Inc. New York, NY and Vice President of the Institutional Funds (since December 1997) and the Retail Funds (since July 2003); formerly practiced law with the New York law firm of Rogers & Wells (now Clifford Chance LLP).
55 Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust TRUSTEE AND OFFICER INFORMATION CONTINUED
Term of Position(s) Office and Name, Age and Address of Held with Length of Executive Officer Registrant Time Served* ----------------------------------- ----------------------------------- ----------------------------------- Francis Smith (37) Treasurer and Chief Financial Treasurer since July 2003 and Chief c/o Morgan Stanley Trust Officer Financial Officer since September Harborside Financial Center, 2002 Plaza Two, Jersey City, NJ Thomas F. Caloia (57) Vice President Since July 2003 c/o Morgan Stanley Trust Harborside Financial Center, Plaza Two, Jersey City, NJ Mary E. Mullin (36) Secretary Since July 2003 1221 Avenue of the Americas New York, NY Name, Age and Address of Executive Officer Principal Occupation(s) During Past 5 Years** ----------------------------------- --------------------------------------------- Francis Smith (37) Executive Director of the Investment Manager c/o Morgan Stanley Trust and Morgan Stanley Services (since December Harborside Financial Center, 2001); previously Vice President of the Plaza Two, Retail Funds (September 2002-July 2003); Jersey City, NJ previously Vice President of the Investment Manager and Morgan Stanley Services (August 2000-November 2001) and Senior Manager at PricewaterhouseCoopers LLP (January 1998-August 2000). Thomas F. Caloia (57) Executive Director (since December 2002) and c/o Morgan Stanley Trust Assistant Treasurer of the Investment Harborside Financial Center, Manager, the Distributor and Morgan Stanley Plaza Two, Services; previously Treasurer of the Retail Jersey City, NJ Funds (April 1989-July 2003); formerly First Vice President of the Investment Manager, the Distributor and Morgan Stanley Services. Mary E. Mullin (36) Vice President of Morgan Stanley & Co. 1221 Avenue of the Americas Incorporated and Morgan Stanley Investment New York, NY Management Inc.; Secretary of the Institutional Funds (since June 1999) and the Retail Funds (since July 2003); formerly practiced law with the New York law firms of McDermott, Will & Emery and Skadden, Arps, Slate, Meagher & Flom LLP.
---------------------------- * THIS IS THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL FUNDS. EACH OFFICER SERVES AN INDEFINITE TERM, UNTIL HIS OR HER SUCCESSOR IS ELECTED. ** THE DATES REFERENCED BELOW INDICATING COMMENCEMENT OF SERVICE AS AN OFFICER FOR THE RETAIL AND INSTITUTIONAL FUNDS REFLECT THE EARLIEST DATE THE OFFICER BEGAN SERVING THE RETAIL OR INSTITUTIONAL FUNDS AS APPLICABLE. 56 MONEY MARKET ACTIVE ASSETS -- MONEY TRUST TAX-FREE TRUST CALIFORNIA TAX-FREE TRUST GOVERNMENT SECURITIES TRUST ANNUAL REPORT JUNE 30, 2003 [MORGAN STANLEY LOGO] TRUSTEES Michael Bozic Charles A. Fiumefreddo Edwin J. Garn Wayne E. Hedien James F. Higgins Dr. Manuel H. Johnson Joseph J. Kearns Michael E. Nugent Philip J. Purcell Fergus Reid OFFICERS Charles A. Fiumefreddo CHAIRMAN OF THE BOARD Mitchell M. Merin PRESIDENT Ronald E. Robison EXECUTIVE VICE PRESIDENT and PRINCIPAL EXECUTIVE OFFICER Barry Fink VICE PRESIDENT and GENERAL COUNSEL Joseph J. McAlinden VICE PRESIDENT Stefanie V. Chang VICE PRESIDENT Francis Smith TREASURER and CHIEF FINANCIAL OFFICER Thomas F. Caloia VICE PRESIDENT Mary E. Mullin SECRETARY TRANSFER AGENT Morgan Stanley Trust Harborside Financial Center, Plaza Two Jersey City, New Jersey 07311 INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, New York 10281 INVESTMENT MANAGER Morgan Stanley Investment Advisors Inc. 1221 Avenue of the Americas New York, New York 10020 This report is submitted for the general information of the shareholders of the Funds. For more detailed information about the Funds, their fees and expenses and other pertinent information, please read their Prospectuses. The Funds' Statement of Additional Information contains additional information about the Funds, including its trustees. It is available, without charge, by calling (800) 869-NEWS. This report is not authorized for distribution to prospective investors in the Funds unless preceded or accompanied by an effective Prospectus. Read the Prospectus carefully before investing. Investments and services offered through Morgan Stanley DW Inc., member SIPC. Morgan Stanley Distributors Inc., member NASD. (C) 2003 Morgan Stanley [MORGAN STANLEY LOGO] 37829RPT Item 9 - Controls and Procedures The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Funds in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. Item 10b Exhibits A separate certification for each principal executive officer and principal financial officer of the registrants are attached hereto as part of EX-99.CERT. Items 2 - 8 and Item 10a are not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrants have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Active Assets Money Trust Active Assets Tax-Free Trust Active Assets California Tax-Free Trust Active Assets Government Securities Trust Ronald E. Robison Principal Executive Officer August 19, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrants and in the capacities and on the dates indicated. Ronald E. Robison Principal Executive Officer August 19, 2003 Francis Smith Principal Financial Officer August 19, 2003